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Environmental Due Diligence Boot Camp
 
 
Lesson 1:  Environmental Due Diligence - What's It All About ? 
 
Part 2
 
 

 

 
 CERCLA, continued:  
 
 
The Superfund Amendments and Reauthorization Act (SARA) enacted in 1986 did provide one way out of the potential CERCLA liability nightmare:  The “innocent land-owner defense”.  
 
The innocent land-owner defense stipulates that if a party who is acquiring, or setting-up operations on, a property has exercised due diligence and completed “all appropriate inquiries” prior to completing the transaction, and does not knowingly accept a contaminated site, they can not be held liable for the cost of a CERCLA investigation or site cleanup. 
 
The specific statutory language (emphasized) reads like this (see § 9601(35)): 
The innocent land-owner defense is defeated unless "at the time the defendant acquired the facility the defendent did not know and had no reason to know that any hazardous substance which is the subject of the release of threatened release was disposed of on, in, or at the facility". 
"To establish that the defendant had no reason to know... the defendant must have undertaken, at the time of acquisition, all appropriate inquiry into the previous ownership and uses of the property consistent with good commercial or customary practice... " 
 

Unfortunately, Congress failed to provide any guidance as to what exactly constituted “all appropriate inquiries”.  In response to SARA, the environmental assessment format which myself and others had already cooperatively developed became the foundation for conducting “all appropriate inquiries”.  This environmental assessment format, which is still used today, was widely accepted and had become more or less an “industry standard” by 1990.  

 

 

 

State Laws:

 

As harrowing as CERCLA liability can be, some state environmental liability rules are even more frightening.  Soon after CERCLA became effective, many states enacted their own, state-level “superfund” laws. Though generally modeled on CERCLA, these state laws often (usually) extend well beyond the scope of the federal statute.

 

In some states, environmental due diligence assessments of certain classes of real estate are mandatory, and must be filed with the state (and thus become public record) in order to complete and record a real estate transaction.

Several states, including New Jersey (the first, in 1983), Connecticut, Massachusetts, New Hampshire, and Tennessee have enacted laws that create “superliens” on contaminated property, to provide a means for the recovery of costs when the state conducts investigation and cleanup activities.  A superlien is superior to all existing liens, and any later-filed liens, that have been applied against the property (with the exception, possibly, of tax liens).  In some states, an environmental superlien can even extend beyond real property, to include personal and business property that is located on the contaminated site. 
 
 
 
Underground Tank Liability:
 
As mentioned earlier (Part 1), underground tanks used to store petroleum products fall under the domain of the Resource Conservation and Recovery Act (RCRA).  Although fiscal responsibility provisions under RCRA are often similar to those established by CERCLA, there are fundamental differences.  Suffice to say that if you buy or lease a property where petroleum contamination resulting from releases from an underground tank or tanks exists, you will be at significant risk for being held responsible for the costs associated with investigating and remediating that contamination.

 
 
 
 
The Bottom Line:
 
If you become involved with a property that contains environmental contamination, you might just become the party that is held responsible for all of the costs associated with investigating and remediating the contamination… and environmental cleanup costs can be staggering.
 
Environmental liability is discussed in greater detail in Lesson 5. 
 
 
 
 
 
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POSTED:  16 December 2010